Yes Bank: A collective win

How in saving Yes Bank, India's financial system reaffirmed its ability to act with purpose

The recent entry of a Japanese financial giant into India’s banking sector through a significant investment in Yes Bank has been widely welcomed. There are signs that more such overseas investments may follow. It is being rightly celebrated as a sign of strength and resilience of the Indian banking system. 

What had probably faded away from public memory, as it typically does, is the spectacular collapse and the painful rescue of the bank, which played out about five years ago. This rescue was unique in how the regulator, government, and public and private banks worked in perfect harmony. It kept a bank alive, protected its depositors, and did not defray public funds. It also culminated in the creation of conditions that allowed significant overseas equity to enter later. Some stories deserve to be told again! 

It was March 2020 and Covid-19 was in full flow. Yes Bank, then the fourth-largest private bank, was in a grave situation. Its capital-raising efforts had repeatedly failed, and the bank was drowning under a mountain of non-performing assets, compelling the regulator, the Reserve Bank of India (RBI), to supersede the board and place the bank under a moratorium. 

Depositors faced withdrawal limits, market confidence was fragile, and the financial system, already coping with aftershocks from a couple of other events, risked losing public trust. The pandemic made stabilising the banking system even more complex. 

An unusual path to stability 

The RBI’s Yes Bank Reconstruction Scheme was unlike any previous resolution. Instead of merging the troubled bank into a larger entity, which would have meant the end of its brand and identity, a decision was taken to preserve it. This reassured depositors that their bank was likely to survive and continue serving them. 

Equally innovative was the composition of the rescue team. The RBI brought together a consortium of banks, led by State Bank of India (SBI), to inject equity and restore confidence. Seven other private banks, big and small, joined hands. For competitors to invest in and rescue a rival institution was unprecedented. Yet, there was a shared recognition that financial system stability was paramount. 

This was a system-led solution, market-oriented in design, collective in spirit, and transparent in execution. It reflected confidence in the strength of domestic institutions and demonstrated that the banking system could safeguard itself without burdening the exchequer. 

The RBI’s intervention was carefully balanced and well sequenced: Liquidity support, a clear legal framework, effective communication, and, above all, the early lifting of the moratorium within a fortnight or so of its imposition. That speed was vital in preserving depositor confidence. 

Retaining the Yes Bank brand ensured continuity for its customers and employees. By mobilising multiple banks as investors, it avoided concentration risk and moral hazard. By introducing lock-in provisions and tax neutrality, it aligned incentives without distorting market discipline. 

Navigating the uncertainty 

Within SBI, I recall, there was naturally a sense of trepidation. The investment in subsidiaries and associates was going to more than double. No one could fully estimate the extent of the stress, or the time and effort required to restore the bank to a safe state. There was no clear visibility as to how quickly or smoothly SBI would recoup such a substantial financial outlay. But there was clarity of purpose: If State Bank of India does not step in as the lead investor, who else would? 

Executing the reconstruction within compressed timelines demanded a high level of coordination. It reaffirmed that when the stakes are systemic, coming together to cooperate becomes an institutional duty rather than an individual choice, notwithstanding even the Covid-19-induced social distancing. 

For me personally, it was both humbling and instructive. The then chief financial officer of SBI was moved out to lead Yes Bank 2.0, which pitchforked me into the finance role at SBI after years in retail and digital banking. As a nominee director of SBI in the reconstructed Board of Yes Bank, my brief was clear and demanding. It was not only to protect SBI’s investment, but to use the bank’s digital capabilities to scale retail so the balance sheet could be de-risked, moving away from its large, deeply stressed corporate book. 

As the head of finance in SBI, the most challenging part then was handling investor relations. The market misread the reconstruction as an unlimited bailout, and SBI’s stock lost nearly half its value. Those were long days — and longer calls, numbers, and explanations. Seeing the stock trade later at about three times the then 52-week high was a moment of great satisfaction. 

The turning of the page 

Five years on, Yes Bank’s financial position has strengthened, its capital buffers are healthier, and a global bank is a strategic investor. A bank that once struggled to raise minimum capital has successfully completed multiple rounds of capital augmentation by attracting investors, both old and new. 

The recent transaction is noteworthy for another reason. None of the investing banks incurred any losses, reflecting a resolution design that was both commercially sensible and systemically sound. This outcome is significant not merely for the balance sheets involved but for what it says about India’s capacity to handle financial stress without panic and without public money. 

Why it is worth remembering 

Technology can enhance access, but trust remains the real currency of banking. With the benefit of now being on this side of regulation and supervision, I can confidently say that trust in the regulator, in the system, and among institutions was what ultimately turned a moment of anxiety into a successful exercise in collective responsibility. 

That is why the recent headlines should be read in full. They are not only about a new investor. They are also about a system that learned, adapted, and delivered. In preserving a bank, the system preserved something larger. It preserved the confidence in its own ability to self-correct. That, in my view, is the enduring legacy of the Yes Bank rescue. 

The author is Deputy Governor, Reserve Bank of India. The views expressed here are personal